Opec cuts oil production
The Organization of the Petro Exporting Countries (Opec) has decided, on the basis of a preliminary agreement reached in September, to cut production for the first time since 2008 in a bid to stop the drop in oil prices. Oil prices soared after the move was announced. The oil market needs stability, some comment in praise of the decision. Others doubt the plan will be put into practice.
Oil market needs stability
The decision of the Opec states to cut oil production will finally bring stability to the oil markets, NRC Handelsblad writes, delighted:
“The price of oil is important, but stability is even more important. The slump in investments in the sector in recent decades in answer to the drop in the price of oil carries the risk of future shortages, with the ensuing surge in prices. The world must complete the transition to alternative energies, the sooner the better. But until then oil will necessarily remain a key source of energy and one of the most important parameters of the global economy. Agreements on production quantities are not ideal. And the question is whether they can be effective if the American oil industry adopts the role of 'swing producer' [adapting its production levels to demand]. But perhaps the new Opec deal will calm down the oil market. At any rate that would certainly be an improvement on the turbulence of the last two and a half decades.”
Output cut is just empty words
The implementation of the Opec deal will be problematic, the financial paper Vedomosti warns:
“There are not many reasons to see the new agreement reached by Opec and other oil-producing countries as anything more than a verbal intervention. Opec hasn't managed to keep its own promises since 1994. The Russian energy minister's comment that production would be cut according to the country's technical capacities is an indication that this could once more be the case. Those capacities are pretty limited. So far, Russia's companies have based their strategy on rising production, and it would be almost impossible to discontinue the development of a mining project without major losses. And in the end it is each individual company that makes such a decision, not the minister. So what happens if a company wants to exploit the situation and increases its production?”
Energy transition moving closer
Rising oil prices will prompt a shift to environmentally friendly energy sources, The Independent writes in delight:
“The more expensive oil and gas are, the greater the financial pressure to shift to non-carbon alternatives. At the moment most alternative sources of energy require subsidies to make them competitive. The price of alternatives - solar power in particular - is falling fast and the world is already close to the point where in some regions no subsidies will be required. The declining cost of electricity storage further increases the attraction of non-carbon energy. The higher the oil and gas prices, the closer that tipping point.”
Oil dependency is the real problem
Opec's plan to push up oil prices is not the major concern, L'Echo argues:
“What should worry us more is our continuing dependence on oil despite all the advances that have been made in renewable energies and lowering consumption. Our buying power is still influenced by the price at the pump, which depends directly on the strategy of a cartel comprising 14 oil-producing countries. Our transportation and heating habits continue to generate CO2 emissions. It's too bad the world has not really changed that much after all.”
Oil prices won't go up for long
Despite its decision Opec will have a hard time keeping oil prices at a higher level, the Frankfurter Allgemeine Zeitung writes:
“First, it isn't clear whether all the nations that are members of the oil cartel will stick to the agreement. Past experience shows that there is reason to be doubtful here. Second, in view of the worldwide surplus of oil it is questionable whether relatively small production cuts can have a noticeable effect on oil prices in the long run. And third, it is not clear what will happen if American oil producers decide to take advantage of Opec's cuts to increase their own production. This has become an increasingly likely scenario especially in the new era that will begin with Donald Trump's presidency. All in all it is unlikely that Opec will manage to push oil prices back up to previous levels in the long term.”